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The Financial Services Agency has drawn up rules for regional lenders operating sideline businesses, such as providing advice to companies or leasing unused office space, FSA sources said Saturday.

Lenders are not prohibited from being involved in these businesses, but there are obstacles because the standards and rules were previously often unclear.

The FSA has drawn up the rules to help regional lenders increase their business opportunities and stabilize their management and finances.

Under the rules, lenders are required to refrain from abusing their influential position over borrowers when they enter the consulting business.

They are also urged not to use loans as a trade-off for favors from borrowers.

It is also stated that lenders can lease out unused building space that has become available as a result of downsizing their own business.

To save costs, lenders can also outsource clerical work to outside companies, but they have to ensure that sensitive information on borrowers does not leak out, the new rules also specify.

Limiting the number of large-lot borrowers within the same industry is another requirement, as is providing adequate explanations of the terms of lending contracts to borrowers and guarantors.

Disciplinary orders will be issued in the event a lender contravenes the rules.

The sources said the FSA will announce the new rules Monday, together with another set of directives on when and in what circumstances the government will convert the preferred shares it holds in local lenders into common shares with voting rights.

The government holds preferred shares in some regional lenders after putting public funds into their depleted capital bases.

The directives say the preferred shares will be converted when the banks remain unable to pay dividends on those shares for two consecutive fiscal years, starting with book-closing on March 31, 2004.

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